Bank of Baroda to sell Essar Steel debt to Hong Kong’s SC Lowy

Bank of Baroda had reported gross NPAs of ₹ 56,480 crore as on 31 March 2018 compared to ₹ 42,719 crore a year ago. Photo: Pradeep Gaur/Mint

Mumbai: State-owned Bank of Baroda is in the process of selling its domestic loan exposure in Essar Steel Ltd worth ₹ 1,200 crore to Hong Kong-based loan and bond trading firm SC Lowy, two people familiar with the matter said.

SC Lowy, in turn, is in talks with local asset reconstruction companies (ARCs) such as Edelweiss Asset Reconstruction Co. Ltd to structure the deal as foreign funds are not allowed to directly acquire domestic assets, these people said on condition of anonymity.

This is the second such instance of Bank of Baroda selling its loan exposure in Essar Steel, which is currently undergoing bankruptcy proceedings at the National Company Law Tribunal (NCLT). According to a 11 December 2017 The Economic Times report, Bank of Baroda had sold the debt to a foreign hedge fund.

“The transaction is yet to be completed. However, SC Lowy has agreed to purchase the debt for 70% of the claim amount,” said a banker, one of the two people cited earlier.

Bank of Baroda, SC Lowy and Edelweiss ARC did not respond to email queries.

Bank of Baroda last quarter sold its ₹ 400 crore exposure in Binani Cement Ltd to Edelweiss ARC, following the delay in resolution under the bankruptcy proceedings. The bank had sold it for 90% cash and the remaining for security receipts.

Bank of Baroda decided to go ahead with the sale even as Indian Banks’ Association (IBA) sent an advisory to all banks early this year urging them to avoid sale of assets admitted for insolvency and bankruptcy proceedings. IBA had argued that the sale would strengthen the ARC’s position in the committee of creditors (CoC), making it difficult to get three-fourth of the lenders to agree to any resolution plan, as required under IBC.

Bank of Baroda had reported gross non-performing assets (NPA) of ₹ 56,480 crore as on 31 March 2018 compared to ₹42,719 crore a year ago. Gross NPA as a percentage of total loan assets stood at 12.26% at the end of March 2018.

Rating agency ICRA, in a recent report, said public sector banks (PSBs) will continue to report losses in FY19 due to higher provisioning against bad loans and write-offs.

According to ICRA, PSBs are expected to make losses before tax of ₹ 41,900 crore-1.01 trillion in FY19 depending on the haircuts they have to take on stressed assets. This compares with a loss before tax of ₹ 1.30 trillion that PSBs reported in FY2018.

“In addition to NCLT route, banks are actively looking at opportunities to sell their assets. With banks at 50% provision coverage ratio, loss on sale to ARC could be lower in a number of assets, which could be the reason why banks may be looking at asset sales to clean up the balance sheet,” said Karthik Srinivasan, group head of financial sector ratings at Icra.